The cost of higher education has far exceeded inflation over the past 30 years. Whether it is competition between schools for students, access to student loans or other factors, there is no doubt that a college education has become an extremely expensive investment.
Higher education price increases have far exceeded the economy’s overall inflation rate, and it is now becoming nearly impossible for families to afford even public schools without significant planning and savings during childhood. ‘student. With two kids already in college and a third to be in school next fall, it’s an all-too-familiar experience.
There are a number of savings options that allow for special tax-deferred savings that aid savings efforts.
The first option available to residents of Ohio is the Ohio 529 plan which is administered by the Ohio Tuition Trust Authority. In this plan, individuals can deduct up to $ 4,000 per beneficiary per year of contributions from their taxable income on their Ohio return. So, for example, a family with three children can deduct up to $ 12,000 by contributing for each of its three children. Contributions may be made in excess of this annual amount, but the excess amount will be carried forward and deducted in future years.
These plan contributions and the corresponding Ohio tax deductions are also not limited to the student’s parents. Grandparents, aunts, uncles and family friends can make deductible contributions to the plan on behalf of a beneficiary, and an account can be opened for as little as $ 25. The income portion of distributions from Internal Revenue Code Section 529 programs can generally be excluded from federal adjusted gross income if the distribution is used only to fund qualified higher education expenses. The savings can be used at any college in the country and isn’t limited to schools in Ohio.
In addition, the Ohio 529 Plan offers numerous investment options depending on the risk tolerance and time horizon of the investor. There are no income limits associated with the tax deductibility of contributions or the tax-deferred savings opportunities of the Ohio 529 Plan.
In addition to the Ohio 529 plan, families can also potentially use U.S. Savings Bonds to save tax-free. The Education Savings Bond program allows eligible taxpayers to exclude from their gross income all or part of the interest earned on the redemption of eligible Series EE and Series I bonds issued after 1989. You must be at least 24 years old. years before the bond issue date. To benefit from this exclusion, the taxpayer, his or her spouse or the taxpayer’s dependent in certain post-secondary educational institutions must incur tuition and other education costs. Individuals with incomes above certain thresholds may not be eligible to participate.
Eligible education expenses include tuition and fees (such as lab fees and other mandatory course expenses) required for the enrollment or attendance of the taxpayer, or the taxpayer’s spouse or dependent. at an eligible educational institution. Payments to qualified state tuition programs are also eligible. However, expenses related to any course or other education involving sports, games or hobbies are only eligible if required as part of a diploma or certificate program. Room and board costs, as well as books, are not eligible expenses. The amount of eligible expenses is reduced by the amount of scholarships, scholarships, educational assistance provided by the employer and any other reduction in tuition fees. Qualifying expenditures must be incurred in the same taxation year in which the qualifying bonds are redeemed.
The pages of the calendar are turning quickly, and before you know it, these kids will be graduating from high school and going to college. Now is the time to start planning and saving for those future expenses. It is important to study the best opportunities that exist, and tax-deferred savings are always more beneficial than savings that are not tax-deferred.
Paul Pahoresky is a partner of the accounting firm JLP CPAs. He can be reached at 440-974-1040 Ã 14 or at [email protected] Consult your tax advisor for your specific situation for additional information and advice on these topics.